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The Eleven Billion Dollar Spending Spree

The Eleven Billion Dollar Spending Spree

Thursday 28 September 2006, AUCKLAND: According to Statistics New Zealand estimates, in the year to March 2005 Kiwis consumed around eleven billion dollars in excess of their disposable income – in effect dipping into their savings by that amount.

In a background paper released on Wednesday by Reserve Bank Governor Alan Bollard, the Bank highlighted the fact that our savings continue to shrink at an alarming rate. At the same time, however, our nominal net worth is increasing thanks to the current assessed value of our houses, which has doubled in the past five years.

Although the Reserve Bank paper points out the limitations of the data on which it has based its conclusions, the numbers clearly indicate that New Zealanders expect their home to be their retirement, investment and health plan, all rolled into one. The evidence suggests that many homeowners view their apparent increase in net worth as “in the bag” and have lowered their savings from current income as a result.

As Alasdair Scott, managing director of investment advisers Money Managers, points out, “Putting all your eggs into one basket has always been an unwise strategy. To be so reliant on a single source to fund your hopes and dreams when you retire is an incredible risk. Do you really want to struggle to survive through your freedom years?”

The housing market, of course, is as subject to fluctuation as any speculative investment. Supply and demand factors have a major influence. And, as the Reserve Bank itself noted in its briefing paper, supply is likely to increase as the baby-boomer generation retires over the next ten years and attempts to convert its home equity into retirement cash.

Will demand increase at the same rate? That’s unlikely, as today’s spiralling house prices make it more and more difficult for new entrants to find affordable first homes.

As a result, there’s a very real possibility that many householders expecting to retire with a healthy nest egg earned by selling the family home will fall far short.

What can (and should) be done now to protect your future? Quite a lot, according to Money Managers. Mr Scott suggests five steps you can take right away:

1. Stop spending more than you earn. Do you really need that eleven billion dollar latte every day?
2. Seriously consider getting some professional financial advice. Every day Money Managers looks after the affairs of 35,000 New Zealanders with $1.8 billion in investments. That still leaves more than a million Kiwi households relying on Neighbourhood Watch to protect their retirement. Are you one of them?

3. Check out the current value of your property (Quotable Value Limited are currently offering property valuations, free until the 8th of October – details at Then take a walk around your neighbourhood. Will it still look that good in ten years time (or whenever you plan to retire)? Could Generation X or Y afford to buy here?

4. Head over to Sorted ( and scare yourself with the Retirement Calculator. You’ll quickly realise you either need to live less or save more.
5. Get started. Click to and fill in a Financial Warrant of Fitness to get yourself a free Financial Toolkit.

Home may be where the heart is, but it won’t always be where the money tree grows. The time to act is now.


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